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Learning with Heterogeneous Expectations in an Evolutionary World

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  • Guse, E.

Abstract

This paper studies a game theoretic model where agents choose between two updating rules to predict a future endogenous variable. Agents rationally choose between these predictors based on relative performance. Conditions for evolutionary stability and stability under learning are found for the Nash solutions and corresponding parameter equilibria. Stability conditions are contingent upon parameter values and the initial distribution of heterogeneity. However, when the cost of using the more advanced updating rule is sufficiently large, all agents will asymptotically use the more parsimonious, or Minimum State Variable (MSV), updating rule.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0547.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0547.

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Length: 27
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cam:camdae:0547

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Related research

Keywords: Adaptive Learning; Evolutionary Dynamics; Heterogeneous Expectations; Multiple Equilibria; Rational Expectations.;

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  21. Guse, Eran A., 2005. "Stability properties for learning with heterogeneous expectations and multiple equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1623-1642, October.
  22. repec:cup:macdyn:v:2:y:1998:i:3:p:287-321 is not listed on IDEAS
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Cited by:
  1. Guse, Eran, 2004. "Expectational business cycles," Research Discussion Papers 19/2004, Bank of Finland.
  2. Guse, Eran A., 2005. "Stability properties for learning with heterogeneous expectations and multiple equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1623-1642, October.

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